The news as of the first coffee this morning, and the music
is… well, we have Dave Brubeck, some John Cage, some Weird Al Yankovic lined up
in the changer, should be an interesting work environment:

First CoffeeSM’s still scratching his head over a
Business Week editorial titled “What America must do to
compete with ‘Chindia,’“ concerning how we should be “responding” to China
and India’s economic “challenge.” Maybe for starters we can stop calling them “Chindia,”
a remarkably ignorant, patronizing locution, as if there’s no difference
between the two, as if China and India have the same economic strengths and weaknesses,
same central policy, same business goals, same problems and issues, same
government, same attitudes towards the United States, same food…

BW: Ever since the collapse of the Soviet Union, Americans could reasonably
dream of a world dominated by a single superpower: the US. No longer. The rapid
transformation of China into an economic powerhouse, and the likelihood that
India will follow in its footsteps, means the US must prepare for a far
different future, one where it must learn to share economic power as never
before.

FC: The article starts off on the left foot – the Soviet Union
was never an economic threat to America’s “superpower” status, its demise is
irrelevant and confuses the point here.While the Soviet Union was disintegrating under the internal
contradictions of state-command economies (hi China) America was competing
economically with Japan. It’s Japan’s economic fall that set the stage for
China and India’s ascension.

BW: Such change won’t be
welcome or easy. But as America’s economic dominance is challenged – China
could surpass the US as the world’s largest economy by mid-century, with China
and India combined accounting for roughly half of all global output –Washington
must craft fresh strategies that will still allow the US to thrive in this new
tripartite world order.

FC: Why China and India doing better axiomatically dictates
America do worse has never been explained, unless you operate under the
delusion that wealth is a static thing, that the pie never gets bigger – if you
have more it’s because somebody else has less. Sharp observers of international
economics know that wealth is created, and the pie always keeps getting bigger.
And the absolute worst disaster is that Washington could start devising new
ways to muddle around in the market.

Here’s a good rule of thumb: Anytime somebody claims that a
country “could” be somewhere fifty years from now, it’s best to disregard such
unsubstantiated speculation. As Chinese economic growth and foreign direct
investment are already tapering off here’s a bet that says in five years their
growth curve will be a lot lower than it is now.

BW: First, America must
renew its commitment to innovation, allowing US companies to keep creating new
products and services that customers around the world want. The US has long
shown a knack for producing the kind of high-margin manufactured goods
(aircraft, construction gear), branded consumer products (Coca-Cola, iPods),
and smart intellectual property (movies, drugs) that are hot sellers from Boise
to Bangalore to Beijing.

FC: What’s there to “renew?” It’s easier to develop an innovative
product or service, protect your intellectual capital and profit from it in
America than anywhere else in the world, nobody’s proposing anything to screw
with that, the rest of the world has an insatiable appetite for things
American, no change on the horizon, what’s the problem? Facts, not empty rhetoric, please.

BW: But today’s Asian
competitors are quickly acquiring the technical skills that underlie much of
American innovation. For instance, China and India graduate a combined
half-million engineers and scientists a year, vs. 60,000 in the US. It’s the
same lopsided story in life sciences. Even if training in the US is better – a
debatable point – the sheer amount of low-cost brainpower that China and India
will have at their disposal will eventually give them an edge.

FC: An edge in what? Outdoing us in movies or aircraft, iPods
and Coca-Cola? Ha ha, and ha. “Technical skill” is the least of it, 98.3% of
scientists and engineers will never innovate in their lives – Stephen Spielberg
and George Lucas didn’t start out as techies on movie sets, Bill Gates and
Steve Jobs started out as entrepreneurs who learned technology, not as
techno-geeks who learned entrepreneurship.

Entrepreneurial innovation is not an acquired technical
skill but the product of a culture which fosters creative, independent
thinking, protects intellectual property, rewards successful risk, keeps
regulation to a minimum and makes capital readily available to start-ups, a
first-class infrastructure open to all and right now there’s no place like
America for any of that – certainly not China either now or in the foreseeable
future.

The Soviet Union churned out millions of scientists and
engineers for decades, where’s all the innovation? The Arab world has thousands
of scientists and engineers and has not contributed a single innovation to the
world in the past century. You can’t swing a cat on a street in Tokyo without
knocking over half a dozen Japanese scientists and engineers and Japan’s famous
for not innovating. Does anybody seriously believe that if Steve Jobs and Bill
Gates had been born anywhere except America that Apple and Microsoft would
exist today?

BW: That’s why it’s time
for Washington and the states to set more rigorous standards for instruction in
such key subject areas as science and math, where Asian students consistently
outperform. It will take years to see the payoff there. In the interim, the
government needs to rethink visa changes that, since the September 11 attacks,
have made it more difficult for foreign students majoring in technology fields
to attend college or graduate school in the US. Many of those students go to
work for American companies after graduation, invaluably bolstering our
technical competitiveness.

But there’s a lot more
than schooling that needs to change. For one, the US has dominated global
commerce and culture for so long that few Americans study any language other
than English.

FC: First CoffeeSM would really like to see this
inane argument about school math and science scores simply evaporate like the
mist it is. In America the standardized tests those scores are drawn from are
given to all students (everyone takes both parts of the SAT, math and verbal),
in most of the rest of the world they’re given to students specializing in
those subjects. Imagine if you took all the future English, sociology and art
majors’ math and science scores out of the mix – taking out First CoffeeSM’s
SAT math scores would have raised his high school’s average a good percentage
point – and just reported the math and science scores for the kids tracked into
math and science programs, which is what places like China do.

Plus people who witch and moan about our math and science
scores never get around to explaining why we, evidently a nation of technical,
mathematical and scientific doofuses, so dominate the world economy,
scientifically and technologically. Know what the top country in both math and
science scores for school kids is? World power Singapore. See how irrelevant
they are?

BW: Indeed, only about 9
per cent of Americans speak a second language. More worrisome: Although college
enrollment in Chinese language classes has grown 20 per cent in the last
decade, the 2000 census found that less than 1 per cent of the US populace
speaks Chinese.

FC: How irrelevant. No study ever done anywhere by any organization under any circumstances
using any criteria has ever reliably shown that America would be economically,
socially, politically, better off if Americans spoke more foreign languages. None,
ever, period, end of discussion, how about those White Sox. It’s one of those
arrogant little factoids repeated by people searching for some way to look down
their noses at America, but please give one solid, concrete proof that if more
Americans spoke Chinese we’d be better off. Remember back when we were all
urged to learn Japanese? Russian?

BW: That’s fine today,
when America still rules the global roost. But given the eastward shift of
design and manufacturing and the Asian expansion hopes of many US companies,
more Americans must become proficient in local languages.

FC: Here’s the logic in play: A. America’s the world’s
dominant economic power, has been for decades now. B. Americans speak
relatively few foreign languages. C. The whole rest of the world’s learning
English because America is the world’s dominant economic power. Therefore,
Americans should speak more non-English languages. Anyone who follows that line
of “reasoning” please drop an e-mail.

BW: To be sure, the
ascendancy of China and India is not assured. Both countries face a host of
challenges that could have big destabilizing effects on the global economy if
not handled smoothly.

FC: Both countries face a host of home-grown inhibitions to
world economic dominance which will in all likelihood keep them from ever
assuming it.

BW: For example, if China’s
growth slows and its unemployment rises, it could face political unrest from
both those who lose their jobs and the hundreds of millions of peasants still
in the countryside. That would surely put a chill on foreign investment and
could even disrupt shipments for the hundreds of foreign manufacturers who now
use it as a production venue. And China’s fragile banking system, only now
starting to face competition from foreign firms, could still implode and roil
world markets.

FC: China’s growth is already slowing. Its countryside is already
getting a lot angrier and starting to smash up things. Foreign direct
investment in China for the first nine months of 2005 is below that of 2004.
The sort of saturation investment that followed China’s entry in the World
Trade Organization in 2002 is over now, and so are the eye-popping “growth”
stats it caused – Volkswagen’s announced it will cut its Chinese investment 40%
by 2008, and they won’t be the only ones. Chinese banks live and lend in a
highly artificial world of government control – China needs to spend $5 of
capital to bring $1 of incremental output, by far a worse ratio than America
(or India). This is what living under Communism does to a banking system, and
the shift into reality will be brutally harsh whenever China decides to do it.

BW: Meanwhile, India’s
public finances are a mess – budget deficits at the federal and state level are
near 10 per cent of gross domestic product – and its historical rivalry with
neighboring Pakistan could escalate into a military conflict that could stall
growth.

FC: India’s public finances have always been a mess. But in the
early 1990s they pushed through economic reforms which greatly freed up
business and led directly to the current boom. The problem now is that India
needs to take on its labor unions to reform its too-rigid labor laws, and convince
communists in its own government to go along with things like cutting
government spending and boosting infrastructure development, and there’s stiff
resistance.

BW:

But counting on China
and India to falter is foolhardy. Beijing has proven surprisingly adept at
managing its economy, tripling per capita income in a generation and attracting
tens of billions annually in foreign investment. Likewise, India is putting in
place the infrastructure upgrades and reduced bureaucracy to shift it from a
services-outsourcing specialist into a broad-based manufacturer in the China
mold.

FC:

Indian manufacturing is increasing, but its economic
advantage will always be in services, and it’s wisely concentrating its
energies there. It’s China which is facing an unsustainable path of massive
government subsidies to money-losing industries, artificially cheap labor
(prison labor, etc.) and when they stop doing that we’ll see the massive social
destabilization the government fears more than anything else. Don’t count on
them to falter? This is the ignorance of “Chindia:” There’s no reason why India
should falter, there’s no reason why China can avoid faltering.

BW:

That’s why the
emergence of China and India as economic giants should be a wake-up call for
America – and the rest of the developed world, for that matter. The “Chindia”
region’s mix of cheap skilled labor, capital-friendly governments, and huge
domestic markets is simply too potent to be dismissed.

FC:

Who’s dismissing it? Nobody First CoffeeSM knows
of. So the pie gets bigger in those parts of the world as they create more
wealth. Bully for ‘em. We’ll get a lot of that pie. World economics is not a
zero-sum game, that’s the old leftist canard which died along with the Soviet
Union. Or so First CoffeeSM thought.

“Wake-up call?” From what? Exactly how is America sleeping?
Honestly, some people should think about what they write.

BW:

So the US must
continue vigorously engaging India and China as trading partners who just may
fuel its future growth along with their own. Otherwise, America risks becoming
the next Old Europe: desperately trying to slow the march of global progress in
a vain effort to retain past glories.

FC:

True enough about the fate of Old Europe, so calcified it
can’t create jobs to save its life (we’re not joking here), but why anybody
would even think that America was in danger of that fate enough to write an
article on it completely escapes logical thought. If anything it’s the attitude
expressed in this Business Week
article, that China and India are threats, that would harm America.

So can we all agree that comparing math and science scores
of school children around the world is irrelevant apples to oranges and has no
bearing on a country’s prosperity or even scientific achievement; that
Americans have gotten along just fine speaking English and will continue to do
so as the rest of the world graciously learns English too and we don’t
particularly need to learn French or Chinese; and that China and India won’t
develop into the sort of stable economic powerhouse that America is until they
learn to protect intellectual property, make capital readily available to
start-ups and reward innovation and that India seems to be smelling the coffee
here a lot faster than the Communists who still run China; and that the rise of
China and India to whatever level they find should be welcomed, not feared or
managed or “responded to” by American business and business regulation?